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Home Prices Still Falling, but the Pace Is Slowing

Home sales have begun to stabilize as sharply reduced prices lured buyers back into the market in July, according to a pair of reports issued this week. And prices, once plummeting at a breakneck pace, fell in June at a more moderate clip.

But prices will have to keep falling, economists said on Tuesday, before the housing market can make a full recovery. Much of the buying last month stemmed from fire sales of foreclosed homes. And prices are expected to keep sagging under the weight of an enormous backlog of unsold homes.

For now, “it’s still a buyer’s market, and likely to be so for a while,” said Stuart Hoffman, chief economist of PNC Bank. “Home buyers are holding all the aces.”

A report on Tuesday showed that in the 12 months through June, American home values dropped 15.9 percent, the biggest annual decline on record.

All 20 cities measured in the report, the Case-Shiller index, reported annual declines in June, with seven cities showing price drops of more than 20 percent. A separate 10-city price index, which began in 1988, was off 17 percent, its worst annual reading ever.

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Patrick MacCarthy this month at his new home in Rye, N.Y. Sales of new homes in the Northeast increased last month.Credit
Craig Ruttle/Associated Press

But the report offered signs that the pace of price declines is slowing. In June, nine cities recorded an increase in home values from the month before, with prices in Boston, Denver and Minneapolis all up at least 1 percent. That compared with increases in seven cities in May. For all 20 cities, prices fell 0.5 percent in June, after a 0.9 percent decline in May.

In a separate report, the Commerce Department said that more Americans bought newly built homes in July, with sales up 2.4 percent to an annual pace of 515,000 units, less than the 525,000 expected by economists. The positive sales figure came a day after a private agents’ group reported that sales of previously owned homes rose 3.1 percent in July.

The new reports signaled to some analysts that the sharpest corrections in home prices and sales might be over. “The biggest declines, they’re all behind us now,” said Nigel Gault, chief domestic economist at Global Insight, a research firm.

“But,” he added, “that doesn’t mean we’re in any sense ready to move up. Or that we’re ready for sales to accelerate. Or for prices to flatten out.”

While some buyers may be coming back into the market, many obstacles to a recovery remain. Mortgage rates rose this summer as lenders continued to tighten their standards for issuing home loans. Inventories of previously owned homes rose last month, and foreclosures are expected to continue.

“The supply of homes is going to remain very large for quite some time, and that means prices are far from hitting bottom,” Mr. Hoffman said.

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A housing development under construction last week in Atlanta. In Southern and Midwestern states, new-home sales fell.Credit
Chris Rank/Bloomberg News

Consumer confidence also remains low, which could discourage demand. A survey by the Conference Board, released on Tuesday, showed that confidence was up in August, but still lower than its level in the spring. Among the 5,000 households included in the survey, 3.3 percent of respondents said they planned to buy a home in the next six months, a big increase from the month before.

Still, economists expect that home sales will stay moderately low for an extended period, as buyers wait for prices to fall even further.

“Sales are probably not going to rebound any time soon because the mortgage conditions continue to get tighter,” Mr. Gault said. He said that the excess supply meant that “prices have still got to come down some more.”

Of the 20 cities surveyed in the Case-Shiller index, Las Vegas had the worst annual decline, with values dropping 28.6 percent in the last year. Prices in Miami fell 28.3 percent, and prices in Phoenix dropped 27.9 percent in the same period.

Only previously owned, single-family homes are included in the Case-Shiller survey, which economists consider the most reliable indicator of home values.

Sales of new homes slipped in Midwestern and Southern states, according to the Commerce Department report, but rose in the Northeast and West. The median price of a new home in July was $230,700, down 6.3 percent from a year ago. Sales of new homes remained 35.3 percent below their level in July 2007.

The new-home sales report is considered volatile by economists, and the government said it had no evidence that the actual change in last month’s sales was “different from zero.”

A version of this article appears in print on August 27, 2008, on page C1 of the New York edition with the headline: Home Prices Still Falling, But the Pace Is Slowing. Order Reprints|Today's Paper|Subscribe